Under the Dutch Presidency of the European Union, the 2nd Experts' Committee of the Facility for Euro-Mediterranean Investment and Partnership (FEMIP) met in Amsterdam, on 25 and 26 October 2004. The meeting was hosted by Mr Gerrit Zalm, Dutch Minister of Finance, and Mr Philippe de Fontaine Vive, Vice-President of the EIB in charge of FEMIP.

The Committee serves as a think tank with the task of putting forward practical and operational recommendations to FEMIP's Ministerial Committee, made up of the Economics and Finance Ministers of the EU and the Mediterranean Partner Countries (MPCs).

Mr Zalm stressed that: "While this Meeting focuses on specific sectoral issues, its underlying aim is to develop a better business climate. This is FEMIP's primary objective. The challenge is to reduce the cost of doing business through regulatory reforms that will enhance the quality of investment climate. This can increase annual economic growth with up to 2%, and result in productive jobs, profitable businesses and poverty alleviation. There is still ample opportunity to increase growth through further reducing the administrative burden and introducing 'smarter' regulation in both Regions. I would therefore welcome an initiative from FEMIP to discuss recent regulatory reforms and remaining challenges at the Ministerial Meeting in Morocco next year".

Mr Philippe de Fontaine Vive, for his part, said: We are all committed to achieving results in the development and management of effective water resources, which is a key prerequisite for sustainable growth. Creating an environment conducive to private investment is essential and particularly relevant for the Mediterranean region, which is an area with a high, if not the highest, level of water stress. Building on its experience, FEMIP believes that reducing water and sanitation deficits requires a combination of reforms from Governments, a supply of expertise from private enterprises and funding from a wider range of sources and types.

A few months after a new phase of enlargement, which has redrawn Europe's borders, continued Mr Philippe de Fontaine Vive, FEMIP has considered it crucial to put on its agenda the extension of the TENs to the Mediterranean partner countries, which are now, more than ever, Europe's new neighbours. I believe the financing of an expanded transport network, designed to strengthen economic, social and cultural ties between the two shores of the Mediterranean, represents a significant opportunity for cooperation between all the financial institutions active in the region. FEMIP is meant to examine the options for financing and managing efficiently the principal infrastructure, necessary to establish a large Euro-Mediterranean area as aspired by the Barcelona Process and how FEMIP itself can best serve for this.

The speakers being senior representatives of EU and MPCs, banks, industry, business organisations, academic institutions and the European Commission, animated a fruitful exchange of views among the some 100 participating experts. They concentrated at the role of private sector participation (PSP) and the appropriate financial instruments for developing the water/sanitation and transport in the Mediterranean Region. More specifically they called for the creation of a Euro-Med Transport Network, and more frequent involvement of the private sector in the management of water/sanitation and transport services.

The first session on water and sanitation was chaired by Mr Gérard Payen, member of Kofi Annan's Advisory Board on Water and Sanitation and member of the World panel on Financing Water for All, while the second session devoted to transport was chaired by Mr Alfonso Gonzalez-Finat, Director at the Directorate-General for Energy and Transport in the European Commission.

Participants came up with the conclusion, that for both sectors MPCs and International Finance Institutions (IFIs) shall aim their attention actions and support at the:

• Need for capacity building of public sector, in terms of planning and regulation;
• Need for tariff reform to ensure cash-flows for the expansion of water and sanitation services, and in transport;
• Identification and preparation of sound projects;
• Encouragement of a Public Private Partnership (PPP) strategy;
• Development of the local private sector to play a role;
• Progressively developing local currency lending lowering exchange risk.

For achieving the above, the following measures are proposed:

• Improvement of donor coordination to a) develop coherent projects and sector framework and b) optimise mix of available funding instruments for projects with regard to their revenue potential (loans) and social and environmental impact (grants).
• Use available financing resources to a) support institutional restructuring, b) develop the capacity of the public sector to create and regulate PPPs and c) provide technical assistance for regulation;
• Encourage development of PPPs, initially mainly to improve services and private funding and later on if this adds value along two axes:
• • Promote transfer of operational know-how from international private operators;
  • Stimulate local private sector to supply specific sector expertise to public entities.
• Consider developing sub-sovereign lending and local currency lending instruments for funding investment and lower exchange risks for infrastructure services remunerated in local currencies.

In his closing address, Mr Philippe de Fontaine Vive noted that: Funds are ready to flow into well-structured sectors and viable projects in water/sanitation as well as transport in the MPCs. FEMIP's lending in 2003 and 2004 is in the order of EUR 2 billion, of which some 50% for private sector. FEMIP should now establish itself as the benchmark for the Euro-Mediterranean economic partnership.

Lending in the Mediterranean Partner Countries (MPCs) takes place under the Facility for Euro-Mediterranean Investment and Partnership (FEMIP). FEMIP focuses primarily on developing the private sector and financing socio-economic infrastructure underpinning private sector development.

This is the culmination of a partnership between the European Union and its neighbour countries on the Mediterranean that goes back more than thirty years, and has been intensified in the 90's in support of the Barcelona Process, first launched at the Barcelona Conference in November 1995. FEMIP aims to help the Mediterranean Partner Countries meet the challenges of economic and social modernisation and enhanced regional integration within the framework of Wider Europe-Neighbourhood, and with a view to the establishment of a Euro-Mediterranean free-trade area. It has enabled Europe to step up its cooperation with the Partner Countries. Thanks to this Facility, endowed with increased financial resources, lending activity in the region has increased from EUR 1.5 billion to EUR 2 billion annually. FEMIP gives priority to financing private sector ventures, with the dual aim of liberalizing the economies of the MPCs and developing their potential in the run-up to the planned creation of an EU/MPC customs union in 2010. It focuses on foreign direct investment and local private sector initiatives as well as social-sector projects, particularly in the fields of health, education and environmental protection, which are fundamental in achieving social stability and encouraging productive investment.

Since 1995, out of a total of EUR 11.5 billion in the MPCs, environmental lending amounted to some EUR 2.4 billion, i.e. 21% of the total lending in this period, (of which half for water and sanitation), while lending for transport projects equally reached EUR 2.4 billion (21%).

• Photos of Philippe de Fontaine Vive (EIB Vice President) and Gerrit Zalm (Dutch Minister of Finance) [1], [2], [3], [4].